YOU MUST HAVE BIG WINNERS!
Venture Capitalists invest millions of dollars in start-up companies hoping to score big. Their failure rate is slightly higher than 75%. In fact, most expect to lose most of the time. For reference Sequoia Capital holds the record for the biggest exit of a VC deal. What’s App was acquired for 22 billion by Facebook in 2014 turning Sequoia’s 60 million VC funding into 3 billion.
There is a grey line between what is investing and what is speculating. Venture Capital investing is clearly leaning hard to the speculating side. It is like loaning money to a family member, don’t expect to get it back. VC firms call this the Babe Ruth effect. There are many strikeouts, but when you hit the ball, it is a home run.
WE NEED HOME RUNS TO BE SUCCESSFUL
The other 99% of investors rely on diversification, and time, and some luck, in timing, it all to be successful. Investing in the S&P 500 can be a passive way to invest in the stock market. It is diversified by 500 different companies. We invest for the long term. The longer we stay invested the less and less timing becomes an issue. The index keeps up with the current successful companies by kicking some companies off the list and adding some each quarter.
The top 5 companies in the S&P 500 index as of September this year are Apple, Microsoft, Nvidia, Amazon, and Google. These 5 companies represent almost 30% of what the S&P 500 is worth. Now imagine if Apple and the other 4 companies on this list never came about. The S&P 500 committee hit a home run each time one of these companies were added to the index.
WHO ARE OUR HOME RUNS OVER THE PAST 5 YEARS?
This list surprised me some. Best % gainers in the S&P 500 over the last 5 years and % returns are: Enphase +1,771 %, Nvidia +1,054%, Tesla +928%, Cadence +507%, KLA +598%. This list was taken December 2023 and will constantly change depending on what period is used. In fact, of these 5 companies only Nvidia is on the list for best performing stock in the S&P 500 for 2024 as of October.
To be successful investing, we need a whole team of well managed companies in our portfolio. Somebody on our team will hit a home run and when they do it helps our bottom line. Unlike VC companies we rely on home runs from a team not from one player. After all Babe Ruth’s are super rare and hard to predict.
So far so good this year for the stock market and our investments. Hopefully it will keep it up for the whole year. The S&P index is up 21% as of the end of September for this year. As an old sage advisor told me a long time ago “ I’ll take it” when we have a good bull run in stocks.
Thanks for your business!
Andy McClung CFP TM
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2024 Market Results
S&P 500 +19.7%
NASDAQ Composite +19.3%
Dow Industrials +11.9%
Russell 2000 +8.4%
World ACWI +16.4%
Source Wall Street Journal 10/02/24